Wells Fargo to Pay $1.2b for Hid­ing Bad Loans be­fore Hous­ing Crash

Wells Fargo & Co ad­mit­ted to de­ceiv­ing the US gov­ern­ment into in­sur­ing thou­sands of risky mort­gages, as it for­mally reached a record $1.2-bil­lion set­tle­ment of a US de­part­ment of jus­tice law­suit. The set t le­ment wit h Wel l s Fargo, the largest US mort­gage lender and third-largest US bank by as­sets, was filed on Fri­day in Man­hat­tan federal court. It also re­solves claims against Kurt Lofrano, a for­mer Wells Fargo vice pres­i­dent.

Ac­cord­ing to the set­tle­ment, Wells Fargo “ad­mits, ac­knowl­edges and ac­cepts re­spon­si­bil­ity” for hav­ing from 2001 to 2008 falsely cer­ti­fied that many of its home loans qual­i­fied for Federal Hous­ing Ad­min­is­tra­tion in­sur­ance. The lender also ad­mit­ted to hav­ing from 2002 to 2010 failed to file timely re­ports on sev­eral thou­sand loans that had ma­te­rial de­fects or were badly un­der­writ­ten, a process that Lofrano was re­spon­si­ble for su­per­vis­ing.

The short­falls led to sub­stan­tial losses for tax­pay­ers when the Federal Hous­ing Ad­min­is­tra­tion (FHA) was forced to pay in­sur­ance claims as de­fec­tive loans soured.